Brandishing political theater as well as threats, the Senate Committee on Small Business last week declared war on slotting fees in the grocery, drugstore and computer software industries as a threat to the American dream.

Fearing industry retaliation, they entered the committee room wearing bags over their faces and testified with electronically altered voices about the difficulties they as small companies faced in getting products into supermarket and drug chains.

Committee Chairman Kit Bond (R., Mo.) related several slotting horror stories he said were told him by small marketing companies. One was that a small business owner received a suggestion from a food broker that he offer to paint a supermarket buyer's house; another was that a small product marketer knew his competitor was paying the lease on a buyer's BMW.

Sen. Bond charged retailers have been illegally using slotting fees to lock out competitors and prevent consumers from getting their choice of the best products.

GOV'T INVESTIGATION POSSIBLE

Slotting is "a practice that appears at least in some instances to have taken a very wrong turn," Sen. Bond said, adding he will ask the General Accounting Office, the Federal Trade Commission and the Small Business Administration to probe the use of slotting fees as anticompetitive weapons.

He also said Congress may need to consider steps to limit the tax code's "subsidy" of slotting fees if retailers and marketers don't set limits on its use.

In the hearing, one of the concealed executives from a small marketing company claimed chain stores are now allocating less than 15% of total shelf space to companies that won't pay slotting fees. He said even when a smaller company agrees to pay the fees, the agreements are regularly broken when bigger competitors offer more money.

TOO-SUCCESSFUL PROMOS

A woman testifying said she knew of a small marketer whose product was removed from a chain not because it failed, but because its two successful point-of-sale promotions prompted complaints from a larger rival. She said retailers and marketers are making sure "there is little or no shelf space allocated to the little guys."

Scott Garfield, VP at Lee's Ice Cream, a Baltimore retailer who tried to bring his shop's product to supermarkets, testified that because of slotting fees he found it easier to get his ice creams into stores in Saudi Arabia and South Korea than into U.S. grocers.

"Slotting fees are not fair," he said in written testimony. "How can these ridiculous upfront and ongoing charges be justified?"

Greg Grundlach, an associate professor at the University of Notre Dame, said his study of slotting fees shows they place small marketers at a disadvantage, although they increase efficiency. "Smaller manufacturers are becoming endangered species" because of the fees, added Robert Skitol, an attorney speaking on behalf of the American Antitrust Institute.

FORECLOSING QUALITY

"This is a foreclosure from store shelves of high quality . . . innovative suppliers. The free market is not so free," he said.

Spokesmen for grocers and package-goods marketers argued that examining slotting fees alone was unfair, since the fees are just one part of a wide variety of inducements marketers use to secure the best shelf space.

John Motley, senior VP at the Food Marketing Institute, said low profit margins, limits on shelf space and too many new products have grocers looking to rationalize their choices of goods. Slotting fees enable smaller marketers to compete for shelf space they would otherwise lose, he said, adding that some retailers waive slotting fees for small businesses.

Senators, however, were unconvinced.

"I've heard from small-business people that bigger manufacturers come in to kick them off the shelves. Isn't that anti-competitive by definition?" said Sen. John Kerry (D., Mass.). "I can see the efficiencies . . . the simplicity of supply,